Gaming & Leisure Properties, Inc. Q1 FY2024 Earnings Call

Good morning, everyone, and welcome to the Gaming and Leisure Properties, Inc. First Quarter 2024 Earnings Conference Call. Please note that this conference is being recorded.

Thank you, Ryan, and good morning, everyone, and thank you for joining Gaming and Leisure Properties First Quarter 2024 Earnings Call and Webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on our website at glpropinc.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. Forward-looking statements may include those related to revenue, operating income and financial guidance as well as non-GAAP financial measures, such as FFO and AFFO. As a reminder, forward-looking statements represent management's current estimates and the company assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to the risk factors and forward-looking statements contained in the company's filings with the SEC, including the Form 10-K and 10-Q and in the earnings release as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release. On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer of Gaming and Leisure Properties. Also joining today's call are Brandon Moore, Chief Operating Officer, General Counsel and Secretary; Desiree Burke, Chief Financial Officer and Treasurer; Steven Ladany, Senior Vice President and Chief Development Officer; and Matthew Demchyk, Senior Vice President and Chief Investment Officer. With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

Thank you, Joe, and good morning to everyone. As always, I want to draw your attention to my written remarks in our release, which emphasize that we had a consistent quarter. During this time, we improved our balance sheet in preparation for what we aim to achieve for the rest of the year. In the final part of my comments, which I'll quote briefly, in 2023, we completed over $1.1 billion in transactions, which included more than $760 million in traditional real estate acquisitions and $337 million in loan funding commitments. The total transaction value for 2023, despite a difficult market landscape, demonstrates our innovation in providing comprehensive financing solutions for our tenant partners. Our activities in 2023 set the groundwork for financial advancement in 2024 and beyond. I want to note that we are currently engaged in several transactions, both small and large. Many of you understand that our operations are quite intricate, requiring substantial restructuring and often regulatory approval. Nevertheless, we anticipate our performance will remain steady and satisfactory, as it always has, for the remainder of this year and beyond. We are optimistic about this. Additionally, as a significant shareholder, I am thrilled with the increase in our dividends over the past few years, including our announcement this quarter.

Thanks, Peter, and good morning, everybody. I'm just going to highlight for the group, what's happening in our income statement for the quarter. For the first quarter, our total income from real estate exceeded the first quarter of '23 by over $20 million. This growth was driven by the Tioga acquisition, which increased cash rental income by $2.2 million; the Rockford acquisition, which increased cash rental income by $3.1 million; the Casino Queen Marquette acquisition and the Baton Rouge landside development, which increased cash rental income by $2.3 million; the recognition of escalators and percentage rent adjustments on our leases, which added approximately $3.5 million of cash rent; the combination of noncash investment lease adjustments and straight-line rent adjustments, which drove a collective year-over-year increase of $9.4 million. As far as operating expenses go, they increased by $30 million, but that was primarily due to a noncash increase in the provision for credit losses. Our PENN amended Pinnacle and Boyd Master Leases have rent resets that are occurring on May 1, 2024. We continue to expect that these resets will result in increased percentage rent adjustments of between $4 million and $5 million annually. In addition, we expect to receive full escalation on these contingent escalation leases, which will result in $6.5 million of additional rent annually. Finally, the amended PENN Master Lease is subject to contingent escalation as well on November 1 of '24 and if obtained in full would result in $4.2 million of annual rent. Included in today's release is our AFFO guidance ranging from $3.71 to $3.74 per diluted share in OP units. Please note that this guidance does not include the impact of future transactions. We have invested in a zero coupon six-month treasury bill that matures in August of 2024 at an implied yield of 5.32%. So in addition to the cash that you see on our balance sheet, we also have this treasury bill. Our rent coverage remains strong, ranging from 1.98 to 2.71 in our Master Leases as of the end of the prior quarter. With that, I'll turn it over to Matt for comments.

Thanks, Desiree, and thanks, everyone, for joining us this morning. Our focus on stability and dependability continues to show in the consistency of GLPI's cash flows and the solid four-wall coverage across our leases. Our business model is built to navigate business cycles, including economic and interest rate volatility. History suggests that heightened volatility often leads to opportunity for those who are prepared. At GLPI, we have worked hard to prepare. Our leverage and liquidity are at levels that strengthen and support our business model. We've got normalized debt-to-EBITDA in the mid-4s, a staggered maturity profile, our next unsecured maturity not due until mid-next year and significant available liquidity between a revolver and quarter-end cash position. We have positioned the company to have optionality on incremental capital sourcing for transactions as they arise. Our track record of creativity makes us an ideal choice for counterparties, who would benefit from bespoke financing solutions. Our partners want not only to solve the current needs but also to have a partner who can predictably continue to meet them well into the future. We've always been a dependable capital partner and in the current backdrop, the value of that dependability has gone up. As potential counterparties need to do things, we are here, ready for them, willing and able. We are focused on closing opportunities to prudently deploy our shareholders' capital.

Thanks, Matthew, and thanks, Desiree. I think you all have a pretty clear picture of who we are and where we're headed. So with that, operator, would you please open the floor to questions.

Our first question is from Greg McGinniss with Scotiabank.

If you look across the regional markets at the properties still owned by gaming operators and those that want to expand still, what is the realistic investable market size that would still meet your desirable investment criteria? And maybe the real estate is desirable, but initial attrition is limited. So how much are you willing to give up on initial cash yields for potentially better growth from rent escalators?

I don't think there's any sort of opportunity, if I understand your question correctly. We see a horizon of some pretty, I hesitate to say juicy, but good opportunities with partners and others that we have on the drawing board on a constant basis. But let me ask Matt to opine on that answer.

Sure. I mean, when you think about the opportunity set, I'd really think of our job as figuring out structures and ways and the approaches to make most every asset work for us. Remember, we've got Master Leases, and we've got a lot of other structuring tools in our tool chest that have consistently made really high-quality cash flow. Every one of these deals tends to be, at least the ones we do, directly originated and with a lot of accommodations for solves on the other side. So I think of most all of the assets out there over a long period of time as part of our opportunity set. The big question is what the catalyst is on the other side for someone to do something? And right now, I mean, there are different buckets. If you have someone who's rolling up assets, developing assets, maybe redeveloping on a large scale, there's a more natural opening for someone like us. And the reality that these assets generate a lot of cash flow means that that sense of urgency isn't necessarily there for everyone. And it's our job to be ready if and when it arises. And the other reality is this year, we've got a presidential election and the amount of volatility that could arise as we get closer and concerns around tax changes maybe that's another bucket to think about. I mean, that's where the Cordish deal ultimately came from.

Got it. Okay. That makes sense. Do you have catalysts or an operator to take action? Considering the recent news about Bally's credit rating being downgraded and the negative outlook, how have discussions evolved regarding potential investment opportunities, both new ones and those already in the pipeline, in light of the tighter financing environment?

This is Steve. I'll try to take a shot at that. So I think we should remove the Bally's news from this comment. I think all of our counterparties, whether they're current tenants or potential tenants in the future, have seen the increased debt costs last longer than they maybe hoped for or at least anticipated. As time has moved on and the hopeful desire for rates to be back to a much lower level has somewhat dissipated, I think people started to come to more of a realization that higher rates might be around longer, and therefore, it has started to somewhat reset the way potential sellers have thought about cap rates. Now don't run with that in that, I'm not saying that people have immediately pushed themselves from an expectation of 7.5% to 8.75%. But I think we have seen people become a little more realistic with respect to pricing expectation. And it has meant that cap rate expectations have started to move higher.

Next question is from the line of Ronald Kamdem with Morgan Stanley.

Just two quick ones. Starting on the pipeline commentary about doing $1.1 billion last year, which is roughly 70%, 75% traditional versus sort of funding commitments, maybe as you're thinking about the pipeline going forward, is that sort of the right mix of opportunities? How is that sort of evolving and so forth?

We'll inform you when we reach that point. However, this situation is highly unpredictable, as I mentioned earlier. We are exploring some smaller deals, which I refer to as inflation fighters, alongside larger transactions. This approach has been consistent for us. Each year, we manage to uncover opportunities, and we anticipate more of the same ahead. The early quiet in 2024 should not imply that there isn’t a significant amount happening behind the scenes. It's like a little duck gliding across a pond—it appears smooth and effortless on the surface, but underneath, it's paddling vigorously. We are always working hard behind the scenes. So, I will stand by that explanation.

Great. And then my second one, if I may, on the guidance, maybe just high level, can you talk about any moving pieces between NOI, interest costs, looks like the treasury investment, how does that impact the guidance? And also, if you could talk about the Lincoln asset and an update there.

Okay. Des?

So from a guidance perspective, we use the SOFR curve, forward-looking, to estimate our high and low end of our guidance, and that is our largest moving part as well as the fact that we have the preannounced transactions for Rockford and the timing of the funding of that transaction also impacts the high end of the guidance. And then as far as Bally's Lincoln, I don't think we have any new information to provide at this time. We still have our option out there. But if we don't have any information to know when they might actually be able to sell us that asset.

We haven't exhausted everybody yet, have we? Operator? Are we still connected?

Peter, I can hear you.

Brian?

So Joe, I think we understand that everybody that's dialed into the line can probably still hear us, but we don't have an operator to filter the questions through to us. So we apologize for just the delay...

Ladies and gentlemen, I apologize for the technical difficulty. Standby. One moment please. Again, ladies and gentlemen, we do apologize for the technical difficulties. We do have a question coming from the line of Todd Thomas from KeyBanc.

Can you hear me okay? All right. First question, just Brandon, Matt, I just wanted to go back, if we could, real quick to some of the commentary around asset pricing. And I'm just curious as you look ahead and look at kind of what you're seeing out there, underwriting in the pipeline, whether you would expect to be deploying capital at higher yields than, say, the 8.3% for Tioga as you sort of look ahead, assuming the environment does not change from here.

Each of these deals is unique, making it difficult to provide a uniform response. I'm not sure that rates have fluctuated recently due to some volatility. However, I believe that this level reflects what is achievable in the current environment. Unfortunately, you'll need to refer to some headlines to see where we ultimately settle with our partners. We always aim for the best possible outcome, but there is a negotiation process between both sides that brings us to an agreement.

Yes. This is Steve. And I think last quarter, I didn't pull the notes to see what I said, but I think I said something along the lines of, I don't expect to see deals north of 9% cap rates, and I don't expect to see deals south of 7%. And I think that remains true at this point. And I think everything else Matt said is spot on.

Okay. Does the more recent backup in rates, does that impact plans at all regarding either sort of redevelopments or expansions that you and your operator partners have maybe been contemplating in any way, either sort of activity levels altogether or timeline?

I think the backup in rates actually increases the amount of dialogue we have with some of our partners. Obviously, as you would assume, when they're contemplating a capital improvement at an asset that we own with them and lease to them, they have a couple of pockets to take cash from or seek cash from for those projects and one of which is borrowing cost. And so if we go turn back the clock a few years, the borrowing cost was always significantly inside of whatever cap rate we could offer from a financing perspective. That's no longer the slam dunk that it used to be. And so I think we've seen an increase in dialogue, and I think that will continue as we move forward here.

Yes. Todd, one of the interesting dynamics we've seen playing out or are seeing in real time with the Fed not cutting as people might have expected, is we've got an inverted yield curve. So people that are borrowing short based on SOFR, our permanent capital on sticker price is a lot closer to what they might be thinking about or better than that versus in an environment where we are, quote unquote, a little more normal.

Okay. That's helpful. And just lastly, Desiree, what do you do with the funds from the zero coupon T-bill at maturity? And what's the rate that you're earning on cash relative to the 5.32%? I'm assuming it's relatively close, but what's assumed in guidance with those funds at maturity?

So at maturity, we're going to use the funds to repay the $400 million bond that comes due on September 1. And the 5.32% is very close to what we get for our normal cash deposit. Right now, we're at like 5.24%, I think, that number changes by the day though, but...

Our next question is coming from the line of Barry Jonas with Truist Securities.

Maybe talk about the competitive environment you're seeing out there right now for deals? Is it kind of the same basis or any new players out there?

I never think that we compete with anybody, frankly. The reality is, yes, sometimes there are other players around a particular transaction. But that coined phrase a couple of years back that most of our transactions are bespoke, where we discuss or find a way to provide something special, different, more effective in the aggregate to a particular partner. And I think we've done that. We're not always the cheapest; it's certainly not our goal. I used to say, I never wanted to be the winner in an auction because the winner often loses. It's just not our goal. What we seek to do is find transactions that give us a spread. It's not real complicated to our cost of capital. And so far, we've been able to do that in any environment. So each transaction is unique. Each of our partners has a special desire. And plus, I'll add one other suggestion too, in a recent discussion we had with a tenant. They do business with us because they like us, and they have confidence in us. And we have a good reputation of being a good partner. All that figures into it, and it's more than just dollars and cents.

Yes. So that number is very volatile. And this quarter, in particular, it was more the macroeconomic environment and assumptions around the commercial real estate index and where that is heading that caused the charge. I would say it's more accounting than anything. It has nothing to do with the performance of our properties that are in our investment and financing lease line, which requires the reserve.

Our next question is coming from the line of Daniel Guglielmo with Capital One Securities.

The first one, you all have a well-diversified portfolio with around eight public and private operator tenants. And I'm sure you guys are talking with them on a regular basis. I'm just curious in those conversations, are there broader themes that they're all thinking through? Or is it kind of a mixed bag?

Steve, why don't you take that?

Sure. Look, I think that each company is in a different state. So I think there are similar themes as far as operating efficiency, focus, and expansion of their properties to drive additional revenues. Those themes are consistent. Where they start to deviate is some of the tenants are a little more focused on growth by way of maybe new jurisdictions that are opening up. Some are focused more on online platforms and things of that nature. So each one has a specific focus that's kind of taking some of the timeshare from them. But overall and overarching, they're all focused on the brick-and-mortar business generating additional cash flow and ultimately paying our rent, which is what we're most focused on as well.

Okay. Great. And the next one is a little bit more like modeling focus. So we've talked about the dry capital powder you all had and just thinking through the cash outlays for the next few years, should we be putting that capital to work as like potential development projects, acquisitions, a bit of both? We don't have insight into the so-called inflation fighter deals. So I just want to give you guys credit there. Any insight there would be helpful.

I'm not sure what we can say. I'll maybe turn that over to Steve for a moment. Look, it's all of the above. We expect to be doing all those things, large, small, development, property acquisitions, everything. And I think everything in that list is on our plate right now.

Yes, I'm not sure I can provide any clearer insights. As Peter mentioned in his opening remarks, these transactions are complex and require time. Even if I shared everything I currently think might happen, I recognize that some of those scenarios will not materialize. Additionally, there are factors I am unaware of that will likely close. Therefore, it's challenging for me to offer specific guidance on forecasting our future.

Our next question is coming from the line of Smedes Rose with Citi.

I wanted to revisit a topic you mentioned during your last call, regarding generational owners who aim to efficiently transfer wealth and utilize tax structures. I'm curious if those discussions are still active and whether they have changed at all with the upcoming election that Matt referenced at the start of the call. Some tax rules are set to expire next year depending on who becomes President. Is there an increased sense of urgency, or are people waiting to see who will take office?

In my discussions and experiences, I think the urgency we observed previously has not re-emerged at this point. There were some discussions that were considerably more engaging leading up to Biden's election and the potential changes that could occur. However, this time, I haven't noticed the same dialogue or rhetoric from the counterparties. Many of these individuals are not likely to be affected by a slight change in the inheritance tax threshold; they possess significantly more wealth that has already been planned for. Therefore, it often comes down to understanding their current state planning perspective. Additionally, their health is also a factor; the concept of a step-up in basis is far more compelling if one believes it might be realized soon rather than being a distant possibility. These discussions are ongoing, and while there's no specific trigger for action, it remains a prominent consideration, and I see it as an avenue worth pursuing moving forward.

Tioga is an example of an opportunity that emerged from that kind of situation. As Peter mentioned, it involved a partnership where someone specifically chose to collaborate with us, resulting in risk-adjusted returns for our shareholders that we believe are superior to the market, thanks to the structuring and various advantages we provide.

Okay. I wanted to ask if you would be interested in being part of a solution for Bally's. They have mentioned needing financing to finish their permanent casino in Chicago. Is that a direction you would consider pursuing?

I've been looking for a chance to get Brandon more involved. So Brandon, we all have answers, right...

I was perfectly comfortable here leading into that question. Look, I think the Chicago project and Chicago market in general is a complicated analysis. And I think we are in dialogue with Bally's and all the projects and things we're working on. And then Chicago is something that turns out to be, in our estimation, good for our shareholders and a good opportunity based on the build, based on the market. I wouldn't rule it out as something we would consider investing in. I don't think we have enough information today, and I don't think we're far enough along in that to say that we definitively would or we would not. But I can tell you that we are looking at it. That's about all we could say on Chicago.

Our next question is coming from the line of Jay Kornreich with Wedbush Securities.

Can you highlight the timeline you see for funding additional ROI opportunities at properties within the current portfolio, such as the amended PENN Lease and the Casino Queen Marquette?

Do you want to take that, Brandon?

I can. I don't think there's really been any change in our anticipated timeline of the funding of those projects. We still anticipate that PENN will probably fund their projects off their own balance sheet to start those projects. And at some point in that process, they'll look to us for funding, maybe closer to the end of that process. That being said, with the way the markets have been, depending on where they are, they could knock on our door and ask for funding sooner. But at this point in time, we're not expecting any change in that. And I think Marquette is a similar timeline. I'm not sure where they stand in permitting and the things they're working on there. It's a much smaller cash outlay. But I think we'd expect that probably to begin in the latter half of this year.

There's a number of those opportunities that we're looking forward to. And in one sense, we take some comfort in knowing that they're out, they are likely to occur, and we need something on a dance card down the road. And we expect lots of opportunity to unfold in near time.

I appreciate that. As a follow-up, after the development funding for the Hard Rock Casino in Rockford, are you seeing more opportunities for new casino developments across the country? If so, what is your interest level in participating in those more speculative but potentially more rewarding construction financing opportunities?

Our interest is very high, as you might guess. We are skilled casino developers and understand markets and costs well. We have built many casinos across the country, and we have the same team at GLPI. We are well equipped, and I can confidently say that if there’s a potential opportunity out there, we are exploring it.

Our next question is coming from the line of Haendel St. Juste with Mizuho Securities.

You have some percentage rents coming up here for the PENN Pinnacle Lease and the Boyd Lease. Can you give us some color as to how those assets have been performing?

Des?

Yes. I think in my opening remarks, I mentioned that the PENN Pinnacle and Boyd Master Leases rent resets that were occurring this year, we're still expecting $4 million to $5 million of an increase. Additionally, we're expecting to get the contingent escalation on those leases as well, and that would result in $6.5 million of escalation.

Got it. And just one more here. We've been tracking foot traffic data and other metrics, and I've noticed a general decline in foot traffic across the gaming sector. What are you observing across your portfolio? Have you seen any effects on rent coverage?

No. I mean, in our earnings release, we do provide the latest rent coverage that we've been given by our tenants, Pages 12 and 13, but they are still extremely strong. Our lowest rent coverage is at 198 and our highest on the Master Lease side is at 271. So some have come down. Some have actually gone up. The 198 on the PENN Lease was 195 last quarter. But even the ones that are going down, it's small, a few basis points, not anything large at this point. But as I said, those numbers are as of December 31, we are on a quarter lag to receiving the rent coverage, hence, certain properties haven't reported yet. So they are as of December 31. So the first quarter, we do understand there were some weather issues at properties, but we don't expect significant changes in our coverage.

But have you seen foot traffic down at your properties?

Yes. We don't have any properties to see foot traffic. So we have to rely on the same things that you all do, which is when our tenants report.

Yes, we get no non-public information, none, zero. So we get it as you get it, frankly.

Our next question is coming from the line of Chad Beynon with Macquarie.

I wanted to focus on Vegas, I guess, Clark County in general. A few operators opened up in the fourth quarter, one in the burbs and then one on the strip. Can you just update us in terms of your appetite and conversations in and around Las Vegas?

Well, I guess you're, of course, asking about the Trop project or the broad commentary on what's going on in Las Vegas. I don't know. Steve, why don't you take that one? I'm just...

I'm not sure if he was referring to the Trop project. That might be a question for later. However, regarding Las Vegas, especially Fontainebleau and Durango, we remain interested in both established and newly developed casino properties. We continue to monitor performance closely in those areas. Boyd's recent report was insightful, and we’re looking forward to Red Rock's updates as Durango develops further. We recognize that our presence there is limited, with VM Resort being our only property. Nonetheless, we are keen on those markets and will remain active if opportunities arise.

Thank you for that, and sorry for the confusing question. Separately, in the past couple of years, the IPO markets have been pretty quiet. It looks like there's been a couple in the past couple of weeks. I'm not sure if that continues, and this is kind of the green shoot moment. But when markets are busier, how does that impact conversations and kind of pricing that you have with public or private tenants?

I don't think the state of the IPO market, whether it's strong or weak, is particularly relevant to our ability to acquire casino properties from operators. While it may lead some operators to consolidate or cause a private operator to seek a public route if the IPO market isn't favorable, there are still many smaller gaming operators out there. We engage with all those parties as potential tenants, including private operators. Therefore, from a real estate acquisition standpoint, I don't believe the availability of equity markets for tenants influences our market or our acquisition pipeline.

Our next question is coming from Robin Farley with UBS.

I have two questions. First, you've been increasing the provision for credit losses for a couple of quarters now. Is this consistent with what you've indicated, meaning it's primarily based on the formula you use rather than performance? I sense there may be a small trend here. Second, you mentioned considering various potential transactions, both small and large. Do you have the capacity and desire to pursue all of them, or are you prioritizing some over others? Could it be possible to engage in multiple transactions at once?

Yes, why don't you take the first part.

Robin, I'll start. Last quarter, we actually saw a reduction in our provision for loan loss due to macroeconomic assumptions. This is important to note because it is not related to our individual lease properties. The rent coverage remains very similar to last quarter, and it is not influencing the provision for loan loss. It is entirely driven by macroeconomic factors, which can fluctuate in various ways, which is why it's considered a noncash add back to our AFFO. If someone else wants to...

In response to the second question, we will not restrict our actions. We will pursue any beneficial transaction that offers a proper return relative to our cost of capital, regardless of size. Currently, we are considering properties of different scales. Our commitment to pursuing opportunities that benefit the company and shareholders remains unchanged. One reason we maintain a strong balance sheet is to ensure we can act swiftly when necessary. We have considerable capacity and are as eager as ever to engage in any sensible opportunities.

Our next question is coming from David Katz with Jefferies.

Thank you for fitting me in. I appreciate it. We’ve covered a lot already, but I want to revisit the duck reference. It seems that the deal market has been relatively quiet, or at least that’s our impression. I think you’re suggesting that it might not be. My question is: what are the main barriers to getting deals done? Is it the cost of capital, a lack of underwriting conviction, or something else? If it’s a combination of these factors, could you help us understand the headwinds impacting announcements and progress, as this issue isn't limited to gaming but affects the entire hospitality sector.

I don't believe we are experiencing any significant headwinds. It's mainly the usual complexities related to timing and how our potential partner wants to proceed with the transaction and its structure. For development projects, we often require more information, and these matters take time to develop. Therefore, I don't see any specific barriers. We have a lot happening, and I'll continue to use my paddling fast analogy because we are engaged in several initiatives that we anticipate will progress in the coming months.

And if I can...

It's kind of open for anyone else around the table to contribute. I've got a few nods here. So that's it. But please go ahead.

So look, what I wanted to follow up with is, we've had definitely a prospective change on the cost of capital, right? I think 90 days ago, we would have expected a downward bias in interest rates. That would be a little less the case. Is that issue in isolation more or less of a problem? Or are these just more circumstantial than anything else?

Well, it hasn't been so far, but...

You're absolutely right. The expectations on the rates have clearly changed; we started the year anticipating five rate reductions, then revised it to three, and now the consensus is likely one, possibly later this year or in December. However, we ensure that each transaction is priced with an accretion analysis to guarantee that our shareholders receive enough incremental benefit for the risks we undertake. This is based on specific financings. As mentioned, we've prepared our balance sheet for these acquisitions and raised capital in a stronger market compared to our current trading price. So, to answer your question, we take into account where the rates are headed and still believe we can complete accretive transactions.

I take a multiyear approach to thinking about the balance sheet, David. So when we think about our leverage level, it took us a while to get where we are. And now we've got full optionality when we think about incremental funding. So we've worked hard to reduce friction for capital raising, reduce cost of capital raising. And to Robin's question, if we have something of scale to do, we're very confident we can raise the capital because we are so disciplined and people appreciate that in the way they step up and we actually raise capital for folks.

Our next question is coming from Caitlin Burrows with Goldman Sachs.

Just a quick one, Peter. Back in the beginning, you mentioned the growth in the dividend. So I guess with the yield as high as it is now, I'm wondering if you or someone could talk about how you think of the dividend decisions to increase it and the outlook going forward? Like do you expect it to track AFFO growth or anything else we should keep in mind?

I'll let Desiree take it.

Of course, at this point, I do think it should attract AFFO growth. We do have a taxable income distribution requirement that we monitor. As we do acquisitions, sometimes that affects the taxable income estimate that we have. Clearly, when we have partnerships, and we do some of the unit transactions that changes the trajectory of our taxable income that we're estimating. But I do expect that for the most part, it should be driven off of the AFFO growth.

Our next question is coming from John DeCree with CBRE.

Well, maybe I'll try to ask one that you've answered a few times a little differently. I think a recent question, Peter, you've mentioned that you don't really see any headwinds to getting deals done. So maybe to ask that differently, is there anything that you look to or look at you could see as a potential catalyst to perhaps stimulate activity. I guess we all have kind of focused on interest rates, but is there anything else that you see out there that might get things moving a little bit more than we've seen so far?

I want to emphasize that the cost of capital has not impacted us. Looking around, nothing we've encountered so far appears to be an obstacle moving forward, at least in the near term. The transactions we're dealing with are progressing at a normal pace, although they often don't move quickly. We initially thought we could finalize Tioga last year, but it simply takes time due to the complexities of our work. However, our partners are eager to make progress. For instance, over a year ago, we announced opportunities with PENN related to various locations, but we're only just now starting to see developments. This is just part of doing business with large assets and complex transactions. Overall, we're confident that we will achieve our fair share and meet the growth targets you're accustomed to seeing.

Then maybe a quick follow-up on a specific item. We're paying attention to probably most people, that is the casino industry and everyone has absorbed quite a bit of OpEx cost inflation over the last 18 months. And interesting, Peter, given your history on the operations side as well, does higher costs motivate the industry or casino operators to maybe look at M&A as a way to scale and reduce costs? Could we see on the other side of this OpEx increase over the last 2 years as a possible motivator for more M&A among your partners?

The quick answer for me is I have no idea what they are thinking. I honestly don’t. We certainly, even PENN, have no reason to believe that they’re not proceeding at the pace with all the projects they have, and they have the longest list on our list, so to speak. But others are there as well. So do I think M&A is an answer? I don’t see it, but I’m looking around the table to see if anyone has a different view.

I think the short answer is what you said is we don't know. I think it could be. It could be an answer to some of what they have on their balance sheets and what they're looking at, but it's not something we've seen, but it doesn't mean that it isn't.

Our next question is coming from the line of Chris Darling with Green Street.

First, just a quick clarification for Desiree. Regarding the percentage rent resets, can you remind me, are those already contemplated in your guidance range? Or does the current guidance range only account for the base rent escalations?

No, the high end of the range includes the contingent escalators I mentioned, along with the percentage rent resets. They are all included.

Okay. And then more broadly for the group, one aspect we haven't discussed is how your internal underwriting standards may have changed. I'm asking this in light of the previous question about operating expenses and their growth remaining somewhat stable, as well as the challenging environment for consumer savings and discretionary spending. I'm curious about how your internal underwriting standards may have adjusted considering these factors.

Well, look, we're as rigorous as ever. Any fool can do a bad deal, and we don't want to be on that list of foolish people. So we're pretty rigorous in how we consider, what we're willing to do with our capital. So I don't expect that we'll make any adjustment there at all.

Well, I think we'll continue to focus on the rent coverage. And to your point on the OpEx side of things, I think we will make sure that you're not going to see us doing a deal that's sub 1.8x rent coverage. And we have not done that historically, but I think even more we're going to be scrutinizing rent coverages to ensure that what we're looking at historically and in the last 12 months, is what we would assume and believe to be the forecasted performance going forward and in the future. So I do think that's an area where you might see transactions start to look and feel a little different is that we're going to obviously have to make sure we're underwriting not only for the past, but for the future a little more carefully.

Yes. I want to emphasize that we take our analysis seriously and we often hire outside consultants to evaluate the market, similar to how we would approach a project or expansion ourselves, ensuring we have an objective third-party perspective. So, I cannot stress enough that nothing has changed in the current climate; it’s business as usual and our standards remain the same.

Yes, I think the current climate affects pricing and the way we think about it and the way we think about pricing these deals more so than it affects our underwriting process. So the process is the same. It's just the outcome can be a little bit different in how we price these transactions based upon the risk profile that we determined through that underwriting process.

Okay. All helpful comments. Just one last quick one, thinking about the Rockford development. Anything new you can share in terms of the developers' intentions in terms of perhaps selling the property over time?

With respect to the sale or potential sale of the building improvements, we have not had further conversations with them about that, and they have not expressed an interest to pursue those discussions while they're under construction. So we have no update to provide on that.

I think the construction is going well.

Construction is progressing as planned and within budget.

The next question is coming from David Hargreaves with Barclays.

I appreciate your clarity on the rent coverage comments before. Those are useful. Lincoln came up in the conversation earlier. And I'm wondering if the Mashpee Wampanoag decision that recently came up, how you view that and if it factors into your appetite for that transaction?

I think regarding that decision, I should probably comment on it. We'll have to see if it ultimately comes to fruition or not. Only time will tell, and much depends on presidential elections and related factors. Aside from that, we view Lincoln as a premier property in that region. We believe that Bally's and other gaming operators also see it as a premier asset, and it's certainly one we would like to own. Additionally, we own the Tiverton and Plainridge assets, which are also in that area. We will be closely monitoring the potential impact on each of those properties and their respective owners as we move forward.

And then turning to Vegas, I mean, the numbers have been so strong. I'm wondering if you had any insight as to sort of the timing of the Tropicana closure. And if you were consulted about it. I mean was it running EBITDA negative? I wonder why now closing it? And if you had any thoughts.

Yes, I'm going to let Brandon address that. It was a positive outcome. The performance wasn't aligned with the long-term strategy for that location. Please go ahead, Brandon.

I think that’s accurate. It was a positive situation, but if you look at the timing of the closure from the start of the A's stadium project, you'll see that the closing of the Tropicana happened as planned. That closure was essential for liquidating the assets and eventually demolishing the property, with construction starting in 2025 for the A's project and the integrated resorts. The closure was timely rather than early to save costs. Given that employees in the area were aware of the casino's closure, Bally's has reported challenges in retaining the right staff to keep that location operational. I believe this isn't about underperformance but rather the timing of the project and the overall process.

Okay. I might have misunderstood. I thought the original plans had called for keeping it open for a while, maybe that had changed.

You would have to ask Bally's that question. I don't think we, here at GLPI, had any expectation that it would be open any longer than what it was.

Of course.

I think we could take one more question, operator.

I apologize, we appear to have no additional questions at this time. So I would like to pass the floor back over to Mr. Carlino for any additional concluding remarks.

Well, the timing is perfect. We're looking at our clock and the hour has told. So look, we thank all of you who have joined us today and appreciate your interest and support. So with that, thanks very much. See you next quarter.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.